Opinion
02 Civ. 4274 (LAK)
August 17, 2002
ORDER
The plaintiff in this case claims to have invented a device that permits a telephone subscriber who has subscribed to "call waiting" service and who is using the line for an active Internet connection to be notified of an incoming telephone call and briefly to answer that call without losing the Internet connection. It contracted with Media Syndication Global, Inc. ("MSG") to distribute the product through a variety of channels that were consigned by the agreement exclusively to MSG. According to the complaint, MSG deliberately dragged its heels in developing the market for plaintiff's product while covertly arranging with the other defendants to have a cheap knock-off made in China which it then introduced in competition with plaintiff's product, essentially eviscerating plaintiff's business. Plaintiff has brought this action on a great variety of theories, a number of which are not now pertinent. MSG moves to dismiss the first five claims for relief — which allege breach of contract, breach of the implied covenant of good faith and fair dealing, violation of MSG's obligations under N.Y. Unif. Comm. C. § 2-306, promissory estoppel and fraud — for failure to state claims upon which relief may be granted.
MSG attacks the first three claims for relief on an identical ground, i.e., that the parties' agreement expired on August 25, 2001 and the complaint fails to allege any conduct that allegedly breached the agreement on or before that date. As a complaint may not be dismissed for legal insufficiency unless it is clear that plaintiff could prove no facts thereunder that would justify any relief, Conley v. Gibson, 355 U.S. 41, 45-46 (1957), this aspect of the motion is frivolous. This complaint amply alleges facts sufficient to permit plaintiff to prove that (a) the agreement did not expire on August 25, 2001 because it was modified and, as modified, renewed, and (b) even if it did, (i) MSG breached it while it was in effect, (ii) the parties entered into a new agreement governing the subsequent period, and (iii) MSG breached the subsequent agreement. To the extent MSG attacks the second claim for relief on the added ground that it is merely duplicative of the first, its position is equally lacking in merit. The complaint quite plainly alleges that MSG contracted for exclusive distribution rights on plaintiff's product through certain channels and then proceeded to stall in order deprive plaintiff of the benefits of that agreement by introducing and promoting its knock-off product. It is difficult to imagine a clearer violation of the implied covenant of good faith and fair dealing, assuming plaintiff can prove its allegations.
MSG's contentions (a) that the contract claim is insufficient for failure to allege the specific contractual provisions relied upon, and (b) based on the Statute of Frauds both fail at this stage because they first were raised in its reply memorandum. In any case, the pleading point is without merit because the specificity of the complaint in this case is governed by FED. R. CIV. P. 8, not the New York pleading cases upon which it grounds its argument. The Statute of Frauds argument fails also, at least at this point in the litigation, because the complaint does not exclude the possibility that a writing sufficient to satisfy the Statute exists, even assuming arguendo that the agreement is within the Statute of Frauds, as to which the Court expresses no opinion. In the future, counsel would be well advised not to raise new arguments in reply memoranda and not to submit surreply memoranda without leave., however,
The sole grounds upon which MSG challenges the promissory estoppel claim are that no such claim will lie unless (1) a problem with contract formation has prevented enforcement of the agreement and, even then, (2) the alleged promise is not inconsistent with the written agreement. (Mem. 8-9) The second ground may be disposed of easily — plaintiff does not allege a promise inconsistent with the written agreement. MSG's suggestion that the alleged renewal of the contract was inconsistent with the clause giving MSG the right to renew only if a minimum volume condition was satisfied is baseless, as nothing in the agreement precluded the parties from modifying that provision or the plaintiff from waiving it. The suggestion that a claim for promissory estoppel will not lie absent some problem of contract formation precluding enforcement of the contract simply has no bearing here, even assuming it were correct, as to which the Court need not express any view. A plaintiff is entitled to plead in the alternative. While it may well be that plaintiff cannot recover both for breach of contract and on a theory of promissory estoppel, it is premature to require it to elect a theory, particularly in light of MSG's contention that the written contract expired.
The essence of the fraud claim is that MSG misled plaintiff into believing that it was acting in plaintiff's interests and in furtherance of the distribution contract while concealing the fact that it was stalling the distribution of plaintiff's product while it prepared to introduce its knock-off, all the while inducing plaintiff to turn over proprietary information for use in developing and marketing the knock-off. MSG argues that the claim is insufficient because it alleges no more than concealment of an intention not to perform under the distribution agreement. There was no duty to disclose any such intention, it argues, absent a duty extraneous to or special damages unrecoverable on the contract. (See MSG Mem. 9-10)
The simple failure to perform under a contract or, for that matter, a simple misrepresentation of an intention to perform, does not ordinarily give rise to a claim for fraud. E.g., Bridgestone/Firestone, Inc. v. Recovery Credit Services, Inc., 98 F.3d 13, 19-20 (2d Cir. 1996). There are circumstances, however, in which a claim for fraud may arise in relation to a breach of contract, viz. where (1) the defendant owes the plaintiff a duty, typically of candor, distinct from the contractual duty to perform, (2) a fraudulent misrepresentation or fraudulent concealment, or (3) resulting injury that is not recoverable under the contract measure of damages. See, e.g., id.; Shred-It USA, Inc. v. Mobile Shred, Inc., 202 F. Supp. 228, 237 (S.D.N.Y. 2002); Macquesten General Contracting, Inc. v. HCE, Inc., 191 F. Supp.2d 407, 409 (S.D.N.Y. 2002). Those criteria are satisfied here.
To begin with, plaintiff alleges that MSG breached a duty of disclosure owed to plaintiff extraneous to the contract both because of an alleged relationship of trust and confidence between the two entities and because MSG was in a position of superior knowledge, not available to the plaintiff, and knew that the plaintiff was relying on erroneous or incomplete information. As a duty of disclosure arises in either circumstance, see, e.g., Remington Rand Corp. v. Amsterdam-Rotterdam Bank, N.V., 68 F.3d 1476, 1483-84 (2d Cir. 1995); Banque Arabe et Internationale D'Investissement v. Maryland National Bank, 57 F.3d 146, 153 (2d Cir. 1995); Manela v. Garantia Banking Ltd., 5 F. Supp.2d 165, 176 n. 17 (S.D.N.Y. 1998); First Bank of the Americas v. Motor Car Funding, Inc., 257 A.D.2d 287, 291-92, 690 N.Y.S.2d 17, 20 (1st Dept. 1999); cf. Harger v. Price, 204 F. Supp.2d 699, 705 (S.D.N.Y. 2002), this suffices.
Further, the complaint here alleges more than a simple failure to disclose an intention not to perform. It asserts that MSG induced plaintiff to disclose proprietary information for use in developing the knock-off and deterred plaintiff from selling its product directly to certain accounts that MSG wished to capture for itself by misleading plaintiff into believing that MSG was discharging its obligations. At least the first, and possibly the second, of these injuries flowed not from any failure by MSG to do what it contracted to do, but from its related but nevertheless distinct deception, and would not be compensable in plaintiff's action on the contract.
In the circumstances, the motion to dismiss the first through fifth claims for relief is denied in all respects.
Following the substantial completion of this order, defendants submitted an untimely reply brief, which for the first time relies upon the Statute of Frauds and makes at least one other argument not made in the motion, and plaintiff filed an unauthorized surreply brief. The Court declines to consider either. Arguments first advanced in reply memoranda are not properly considered. Defendant has not sought an extension of time within which to submit its reply memorandum. Plaintiff's distress at the reply memorandum does not justify burdening the Court with unauthorized papers. The Court simply should not be put to the added burden that occurs when, after the substantial completion of a decision following what on the face of things is the submission of all papers, the parties make additional filings.
SO ORDERED.